Investors remain open to risk despite market jitters around crises such as China and Greece, according to the findings of the latest Risk Rotation Index by NN Investment Partners (NNIP).
The research revealed that 28.3 per cent of the panel of global institutional fund managers surveyed said that they had increased their appetite for risk over the previous six months compared to 18.3 per cent who said that their appetite had decreased, leaving overall net risk appetite at +10 per cent.
However, in spite of this confidence, investors have growing concerns over a potential Eurozone crisis, with 49 per cent of respondents citing it as a ‘significant’ threat to their portfolios – up from 35 per cent in the previous quarter – while one in eight (13 per cent) view it as a ‘very significant’ threat.
Valentijn van Nieuwenhuijzen (pictured), Head of Strategy, Multi-Asset at NN Investment Partners, says: “A Eurozone crisis was viewed as significant threat by almost half (49 per cent) of investors who appear to be approaching the current situation with both caution and confidence.
“Greece may have jolted markets but the Eurozone survived. The Chinese crisis – we think we can call it a crisis by now – is creating serious problems for the commodity exporters and the countries that sell the most capital goods to China.”
“Despite market jitters investors still have confidence in the market and retain some optimism with the recent pick-up in growth in the US and Japan. As we are back in calmer waters (at least temporarily), we upgraded equities from neutral to a small overweight which was our stance before Greece and China spoiled the party.”
Away from the Eurozone, other potential dangers such as a black swan event (24 per cent) and a Chinese slowdown (21 per cent) were also named by investors as events of which they were wary.
As well as indicating a preference for risk amongst investors, the research also hinted at growing stability within investors’ portfolios. Indeed, more than half (53 per cent) of the panel stated that they had not adjusted their risk profile over previous six months – the highest proportion since the index was launched in 2013.
In order to mitigate potential risk over the coming months, investors appear to be most in favour of using multi-asset (74 per cent) and equity strategies (56 per cent). When broken down there is little difference in preference between balanced and total return multi-asset strategies – 37.3 per cent vs. 36.3 per cent – meaning that individually both strategies are more favoured amongst investors than illiquid assets such as private equity and mortgages (26 per cent), hedge funds (22 per cent) and high dividend (18 per cent).
Van Nieuwenhuijzen continues: “In the current investment climate there are a great number of pockets of opportunity for investors – but also a great number of potential pitfalls. It is therefore important for investors to deploy the right strategy to ensure yield whilst simultaneously mitigating market turbulence. Indeed, our survey reveals that 46 per cent of investors have diversified their portfolios to manage risk over the past year, and we believe that multi-asset strategies such as balanced or total return funds provide investors with the exposure to risk that provide them with a steady yield stream – even in an uncertain economic landscape.”
When looking at the asset classes most favoured in terms of risk versus return over the coming three months, investors stated a preference for equities (34 per cent), followed by real estate (17 per cent) and government bonds (14 per cent). The most favourable geographical regions in terms of risk versus return were the US (46 per cent), Japan (38 per cent) and the Eurozone (29 per cent).